Friday, April 30, 2010

At last, the more than a year long struggle of the California Transit Association yielded some positive results, when Governor Arnold Schwarzenegger reluctantly signed the laws (ABX8 6andABX8 9). The new laws eliminated the 6% sales tax on gasoline, part of which was dedicated to transit funding, and raises the excise tax from 17.7% to 35% on gasoline. The law bounds the state to provide subsidies to transit operators through steady funding for operations by using the sales tax on diesel to replenish the State Transit Assistance (STA) Fund. STA funds are the only source of state funding for public transportation operations, which help transit agencies pay for the fuel, maintenance, and workers needed to operate trains, buses, and ferries.

Background

Since 2000, billions of dollars in state public transportation funds have been redirected to general revenue funds to plug the holes there through the state budget process. The California Transit Association claims that over the decade almost $ 4 billion have been diverted from the state’s public transportation, and worst of it is that only in the last three years around $3 billion have been diverted. The advocates of public transit term this diversion as “raids”on the public transit. The heavy diversions led to state-wide reduction in service of transit, increased transit-fares, lay-offs of employees, and sufferings of traumatic situations both by poor people and also senior citizens.

Source: Metropolitan Transportation Commission, California.

The 2009-2010 state budget was a deep stab in the back of the transit operators and the public, when the State Legislature and Governor eliminated the STA fund entirely. The resentment widespread, as the elimination of STA compelled transit operators make tough decisions in fare-increase and service-reduction. For example, the Metropolitan Transit Development Board (MTDB) of San Diegoincreased the fare by as much as 150% on various routes, the monthly passes were increased by 10%-12%, the services frequency for many routes was curtailed and for other routes the night service was totally eliminated.

But during this time the California Transit Association has already approached the court and filed a law suitagainst the State of California, in 2007. The suit was aimed at recovering the already diverted funds to be spent for “mass transportation purposes”. The court decided upheld the association plea, but the state filed an appeal. In September 2009, California's Supreme Court rejected the state’s appeal and ruled that the state's redirection of public transit funds to help balance the budget was illegal.

The Gas Tax Swap Law and the STA:

The state’s approval of the Gas Tax Swap Law (swapping sales tax with excise on gasoline) ensures a minimum provision for SAT funds for supporting the operating costs of the public transit. While the elimination of sales tax on gasoline means annual loss of $100 million, the provision of minimum funds means “relative certainty” for the public transit agencies.

The transit agencies would be receiving a one-time allocation of $400 million for the operating fundsunder the STA program to provide relief for operations funding through Fiscal Year 2010-11. Allocations beginning in 2011-12 will fund the STA at a baseline of approximately $350 million per year, with that amount projected to grow in subsequent years.

While final disposition of the case is pending – including the possible repayment of at least some of the more than $3 billion diverted over the past three years – the new agreement provides STA funding at a minimum level that represents an 83 percent increase compared to average annual STA allocations over the past ten years.

The great recession and resulting budget crunch has left many states scrambling to find new sources of revenue to pay for such basic services as road repair and maintenance. Revenue from gas taxes has been declining due to the economic climate and increasing shift to fuel-efficient cars – a trend which is only expected to increase with the introduction of higher CAFE standards.

In response, Pennsylvania turned to one of the oldest forms of road funding: tolling. The state proposed to toll the entire length of I-80 to raise revenue for road maintenance and fund mass transit networks in the state. However, the plan was shot down by the USDOT due to the diversion of some toll money away from the roads on which they are raised.

Critiques of the decision have been widespread, citing a need to reform the user fee approach and change the DOT’s law to a less outdated one. The user fee approach to transportation funding has originated by using gas tax revenue on federally funded highways. This user fees concept is very equitable on the benefits-received principle. Whoever uses the road pays for upkeep of the road. However, this was only true on highways and the declining revenue from the gas tax has led to shortages in highway trust fund. Obama has infused funds from the general fund into the highway trust fund to keep it afloat and still there is a need for more revenue. The highway system that “pays for itself” may be over.

Tolling AnalyzedOutside of the debate regarding the DOT’s decision, tolling itself is controversial. It raises interesting equity and efficiency questions. Since tolls are often levied as a flat fee, they are regressive for lower income individuals many of whom have to drive work. In areas without adequate public transportation, the inequity of tolling is more pronounced. If toll funds are spent on transit networks, then the inequity could be lessened. Moreover, tolling a specific road while leaving others untolled could lead to significant diversion of traffic as drivers attempt to avoid paying.

Options for PennsylvaniaThe question for Pennsylvania is, why not just raise the gas tax? The answer is: people don’t like that. Without tolling or a raised gas tax, Pennsylvania, like many other states, will have to be inventive in finding revenue for roads. Without additional funds, Pennsylvania will have to cut maintenance and transit service which would be the most iniquitous solution of all.

Welfare spending in Minnesota is among the highest in the nation and it's been growing steadily for more than 10 years due to the rising cost of providing health care for the needy. Nearly 23 percent of all state and local government spending in Minnesota during fiscal 2007 went toward services that fall under the Census Bureau's broad definition of welfare, according to the 2007 Census of Government Finances. Among states, that ranked behind only Maine at 24.3 percent and Rhode Island at 23.7 percent.

However, the efficiency of this welfare system has been questioned. People are asking “is the Minnesota welfare system helping the people it wants to help – people who are really in need and MN residents?”

The first concern is about the transactions in the EBT system out of Minnesota. The EBT card provides cash and food support benefits to Minnesotans. In 2007, 12.9 million transactions totaling $496,330,741.25 were made. Of those transactions, 309,717 took place in states other than Minnesota for a total of $10,226,758.50.

“About 310,000 purchases were made out-of-state, using debit cards that are issued to welfare recipients. Those purchases totaled more than $10 million. I can understand some out-of-state purchases, especially in border states. But I'd like to know, for example, why $3,000 was spent in Hawaii”.

Citing millions of state taxpayer dollars being spent in other states through the use of Electronic Benefit Transfer (EBT) cards, Minnesota House Republicans called for legislative hearings and an audit of the state’s EBT system.

Another concern has to do with Minnesota’s reputation as a “welfare magnet”. House Republican Minority Leader Marty Seifert, R-Marshall, cited an analysis by the Minnesota Department of Human Services of welfare applications showing that 13.9 percent of applicants moved to Minnesota from another state or nation within 12 months of submitting an application.ST. PAUL, March 11, 2009 – Minnesota House Republicans proposed a new round of welfare reform to end Minnesota’s reputation as a “welfare magnet” and help balance state government’s $4.8 billion deficit.

Under the proposal, anyone who applies for state welfare benefits within one year of moving to Minnesota would be granted no greater level of benefits than the person would have received in their previous place of residence. New recipients would then remain under the rules of their previous state or nation of residence until their benefits run out.

Thursday, April 29, 2010

In the debate over future transportation policy, the jurisdictions are faced by the need for new revenues and have largely avoided gas taxes, carbon taxes, or other mechanisms that could solve budget problems. One frequently proposed option is infrastructure privatization–for instance, leasing a public highway to private investors and giving them the right to collect tolls in order to turn a profit. Although only a small portion of surface transportation routes offer profit opportunities for the private sector, these “public-private partnerships” are being touted as a major way to deal with transportation budget shortfalls.

The Texas Department of Transportation has implemented a Comprehensive Development Agreement (CDA) that encompasses public-private finance. A CDA is an agreement with one entity (the developer to design, develop, construct, finance, acquire, operate and/or maintain certain kinds of facilities. The right to price and collect revenues from toll roads is leased to a private entity for a finite but rather long period of time in exchange for providing local and state governments with a quick influx of cash and/or additional infrastructure.

TxDOT claims that CDAs have many benefits including,

Private companies should have a proven advantage over the public in providing this particular good or service and offer a clear and long-term added value–not just temporary budget relief or political expediency.

Accommodate rapid growth of VMT

Accelerate construction, and complete projects sooner

Increase highway efficiency by reducing current congestion and allowing for faster and safer transportation of freight and people.

The public will not receive full value for its future toll revenues. The upfront payments that states receive are often worth far less than the value of future toll revenue from the road. Analysis of the Indiana and Chicago deals found that private investors would recoup their investments in less than 20 years. Given that these deals are for 75 and 99 years respectively, the public clearly received far less for their assets than they are truly worth.

The public loses control over transportation policy. Private road concessions in particular result in a more fragmented road network, less ability to prevent toll traffic from being diverted into local communities, and often the requirement to compensate private operators for actions that reduce traffic on the road, such as constructing or upgrading a nearby competing transportation facility.

Public officials cannot ensure that privatization contracts will be fair and effective when leases last for multiple generations.

One project that was introduced after the CDA was the Trans-Texas Corridor in 2005.It was a proposed multi-use, statewide network of transportation routes across Texas that would incorporate a network of broad corridors linking major cities, with toll roads for cars and trucks, tracks for freight and passenger rail, and space for pipelines and power lines. However, the project was dropped in 2009 after so much public resistance.

Even though there is a dire need for alternative transportation finance models, even new methods are being met with resistance. Texas Governor Rick Perry said he will continue to look at public-private partnerships to build roads, including toll roads."The name Trans-Texas Corridor is over with. We're going to continue to build roads in the state of Texas," he said. "Our options are relatively limited due to Washington's ineffectiveness from the standpoint of being able to deliver dollars or the Legislature to raise the gas tax. So, we have to look at some other options."

Wednesday, April 28, 2010

Falling revenues have plagued governments of sizes small and large in the past years, but perhaps those hardest hit are counties small in population but large in size.Maintaining roads and bridges in a metropolitan county with a large tax base (and small area) such as Ramsey County in Minnesota or in Minnehaha County in South Dakota is less of a financial challenge than in its rural counterparts.The “wheel” or “wheelage” tax has, in recent times, been counties’ answer.The wheel tax adds a flat fee per unit (wheel) of a vehicle, typically with motorcycles exempt and a limit on the number of taxable wheels (conveniently limited to 4 in many cases).The tax/fee is added to the host of charges that make up the annual licensing fee for motor vehicles, but unlike the other charges, is earmarked for the county instead of a larger state general or special fund.Thus, rather than pushing for a statewide gas tax increase to bolster the highway fund coffers, counties can turn to wheel taxes to boost their own highway budgets.

In Minnesota, the 7 metro counties have had the authority, since 1972, to levy a $5 per vehicle wheel tax although until 2007, it had last been used by Hennepin in 1975.Now, however, all of the metro counties except for Hennepin and Ramsey utilize their ability to levy the tax.For fiscal year 2008, over $4.5 million was raised from the $5 tax with administrative costs of $86,501 to the Department of Vehicle Safety.The $4.5 million represents approximately 9/10ths of 1% of total motor vehicle revenue.

In my home state of South Dakota, wheel taxes have been a common revenue source since their allowance in 1986.Currently 38 of the 66 counties levy the tax.In Beadle County, where I grew up, the issue of raising the wheel tax from $2 a wheel to the maximum allowed $4 a wheelis currently waging.With a population of only 17,000, the county struggles to maintain its 573 miles of paved roads, and 140 bridges (2/3rds of which are over 70 years old).The county hopes to raise an additional $200,000 from the tax increase if it passesin the June election.

While the wheel tax can be considered a regressive tax, the ease of its administration and relatively small amount makes it a great tool of county governments to fund transportation maintenance.In Minnesota, increasingly common LGA reductions may be partially offset by increasing wheel taxes.

Friday, April 23, 2010

Since Lyndon Johnson signed the Higher Education Act in 1965, federal student loans have broadened access to many institutions of higher education. Students from even modest backgrounds have been able to receive loans that do not require repayment until after school completion. However, an unexpected result of these student loans could actually be college cost inflation, negating much of the benefit they have created.

The cost of a four-year degree has doubled in the past 10 years. Data has shown that over time, tuition typically increases at twice the rate of general inflation.

The availability of federal student loans is likely a factor in rising tuition. The market for higher education is, in some ways, similar to other markets. In the general macroeconomy, excess money supply increases overall demand for goods and services, creating inflation. The almost unlimited funds available immediately to students probably have a similar inflationary effect on tuition costs.

College costs rise because of distortions in consumer behavior. If students had less to spend (could not borrow indefinitely), and a better idea of how much they were spending (they were more financially savvy and had earned a larger portion of the money before spending it), colleges would have to work harder to keep tuition costs low. There would be more pressure on higher education institutions to demonstrate their value per tuition dollar. Instead, colleges can grow much more expensive year after year with little pushback. They are more likely to build fancier buildings, recreation centers, and dormitories – which have little bearing on the quality of education provided. Schools are also increasingly hiring more high-paid faculty that have only a secondary concern for student education.

In the case of state supported institutions, government can cut aid with less opposition. Tuition will rise, but students can still attend. The percentage increase will only be a number that results in more borrowing per student.

It is apparent that many students are allowed to take on loans that will be difficult if not impossible to repay in the future. The government encourages students to borrow—and schools collect money from students—without question. This is often true for students who attend expensive institutions, but study subjects that are unlikely to lead to high paying careers. While it is hard to quantify, we must consider the impact of incurred debt on recent graduates’ career choices. Recent graduates with debt will be less likely to enter lower paying careers in public service, the arts, or humanities. For many, the career trade-off is not between a life of luxury that of basics. It is between basics and a life of unsustainable personal debt.

An especially troublesome occurrence is when economically disadvantaged students, many of whom are the first in their families to attend college, begin their studies after taking out loans. Many of these students need to drop out at some point (to earn additional income, to take care of children, etc.). These drop-outs face the double burden of large debt and the lack of a degree. Because of their difficult economic circumstances, they will have an even harder time handling the debt.

As a society, we must question the long-held assumption that a high-priced four-year degree is always the best choice for a recent high-school graduate.

Today almost all states in America are facing more or less serious budget problems. Nevada`s projected budget gap for next year is going to be the country`s largest in terms of proportion of general-fund budget.The expected shortfall equals to nearly 60% of Nevada`s total budget. The result of it can be disastrous for the state higher education system - from unpaid day offs and furloughs of a staff to even closing entire institutions. Nevada needs to make the hard choices.In February 2010 the state announced deep cuts in education as long as in health and human services.More than 50 percent of the state tax revenue goes towards public education.The state is going to collect 900 millions less in the next 16 months than officials had budgeted for.Assembly Speaker Barbara Buckley said there`s no way the legislators can avoid cuts to education. Daniel Klaich, Nevada System of Higher Education chancellor, during a hearing before the Legislature`s Interim Finance Committee presented several ways the system could save enough money to cover a 22% shortfall in revenue. It could close entire colleges, or impose 1,290 layoffs, or 20 percent pay cuts across the board, or raise tuition and fees by 48 percent. He said such cut - $37 million for the rest of this fiscal year and $110 million for the next one --would put the system back to 2002 year level financially. The problem with this solution is that the system has 20,000 more students now than it did then.In addition the number of high school graduates in Nevada is rapidly growing.This fact can make the problem with financing the public universities even worse. The state lawmakers have already approved a 6.9% midyear cut for higher education in addition to 24% cut in state funds in 2009 year`s budget session.As a result, Nevada universities are preparing to close colleges, departments and programs.Thousands of students are being shut out of classes at community colleges.The prospect of closing an entire institution remains possible. Cutting the system too much may have long-term consequences for education ,business and economy in Nevada that will take years to recover from.

“Student Loans that Put Students First: The education related initiatives funded by the Health Care and Education Reconciliation Act are fully paid for by ending the government subsidies currently given to financial institutions that make guaranteed federal student loans. Starting July 1, all new federal student loans will be direct loans, delivered and collected by private companies under performance-based contracts with the Department of Education. According to the non-partisan Congressional Budget Office, ending these wasteful subsidies will free up nearly $68 billion for college affordability and deficit reduction over the next 11 years.”-Whitehouse.gov/higher-education

The student loan reform that was passed with the health care bill effectively cuts out banks as the “middle-men” who were getting all of the benefit of subsidies through the Federal Family Educational Loan program, while leaving all of the risk with the federal government. The goal behind student loan reform is that turning those federal loans from banks into direct loans from the federal government, the program will save $68 billion. This money will then be redistributed into other federal higher education assistance programs. Additionally, the decrease in expenditures for higher education student loans will assist in reducing the federal deficit.

President Obama’s broader agenda for higher education includes:

Expanding income based repayment options for borrowers with unmanageable debt.

Higher education enrollment has increased during the current economic recession, and the higher demand for federal student aid has taken a toll on current programs.The money saved through the Health Care and Education Reconciliation Act will infuse the programs mentioned above with much needed funding that will improve our position nationally while making higher education accessible and affordable for low and mid-income families and individuals, as well as minority populations that have been at an educational disadvantage due to lack of opportunity.

It is anticipated that this act will help curb the phenomenon and effects of “brain drain,” at state, local, and federal levels by committing funds to the often overlooked community college system. Community colleges are often much more accessible to a greater population of people than a four-year college or university. In addition to the geographic accessibility, community colleges offer greater accessibility through more flexible course scheduling structures, especially for non-traditional students, and often at a lower cost. This use of the money saved through the student loan reform is expected to help train the workforce for entrance into a global economy, while preparing people for positions in their local and regional economy.

Education is believed to have a phenomenal return on investment, not only for individuals but for the nation and taxpayers. Investing in higher education through a robust and rehabilitated federal student loan program as well as infusing selected types of institutions that serve low to mid-income Americans, will prepare today’s workforce and that in the future. A less blatantly promoted objective and benefit of this plan appears to be increasing the population of well educated and employable Americans, which ultimately increases the tax base of income earning American taxpayers.

Thursday, April 22, 2010

Higher education is the natural next step in having a strong k-12 school system. In Minnesota we have a rich history have of education. The University of Minnesota is in fact older than the State of Minnesota itself and through the years it became a venerable institution of learning, innovation and technology. In addition to the University of Minnesota the state has developed a Minnesota State College system that includes seven universities across the state. These institutions are responsible for educating many of the people in our state and because of which it is critical that they stay competitive in the higher education market.

With our dramatic budget deficits Governor Pawlenty has continued to cut funding to higher education which has put these institutions in a position of having to increase tuition dramatically. This is a similar situation that the University of Minnesota found itself in 2003 when they had to raise tuition 5% for two years in a row in order to meet the budget after the dramatic budget cuts. We are facing similar economic times today. This article from MPR (of which I am a member so feel no guilt in linking to their webpage in a blog posting of mine) MPR Higher Education Cuts outlines the current fiscal crisis. It also points out that while Governor Pawlenty is cutting the budget dramatically forcing tuition hikes while also passing a law that would limit tuition hikes to 3%. This would dramatically reduce the options for the University of Minnesota to function at the high standard we are accustom to. A more recent article in the Daily highlights the tuition hikes that are facing out-of-state tuitions Daily-Out-of-State Tuition increase to the toll of 7.5%, stimulus money has shielded in-state students from facing the same fate but this dramatic increase will result in 42% of the University’s budget to be paid for by tuition. The first year in which is surpasses state funding.

A slightly more recent article in the Daily highlights the other cuts Governor Pawlenty has made that will affect grants and student loans Daily-Pawlenty Cuts. The article states that nearly half of students going to college today take out student loans and decreasing their ability to combine work study and other funding opportunities might affect who attends college. This is particularly unwelcome because of the difficult financial times we are currently facing and people are going to college in greater numbers. We should be supporting these people in the good decision to educate themselves and instead Governor Pawlenty is making it harder on them. To further highlight the kind of political maneuvering this has become Margaret Anderson Kelliher who is currently speaker of the house and is running for Governor highlights higher education as one of the issues on her campaign website Margaret-Higher Education Issue Statement (warning this will direct you to a very partisan website).

In conclusion Pawlenty has caused tuition to increase in Higher Education and runs the risk of devaluing the importance of Higher Education in Minnesota, with any luck new direction in the Governor’s office will renew our commitment to creating the most educated work force in the country.

Saturday, April 17, 2010

In 2005, the Missouri state legislature developed a funding mechanism called the “foundation formula” to fund K-12 education in the state. The foundation formula uses a mathematical equation to determine the amount of funding that each school district is set to receive. This equation takes into account several factors for each school district including everything from student enrollment, the number of low-income students, and student attendance. However, the foundation formula is largely based on property, income, and sales taxes for the given district with the central component being taxable property wealth. The foundation formula is designed to provide more equitable funding between school districts across the entire state of Missouri. The formula adopted in 2005 was designed to focuses on student need. The previous formula simply attempted to compensate for the inequities in property tax bases between school districts. The change to the new formula was motivated by a law suit filed by more than 100 school districts across the state of Missouri. In the midst of a devastating economic recession the Missouri state legislature has been forced to consider cutting a portion of the funding the foundation formula. The initial appropriations bill called for decreased funding to be taken from the least affluent school districts. Missouri Governor Jay Nixon vehemently opposed the appropriations bill arguing the reductions in K-12 funding be spread evenly across all school districts. In addition, Governor Nixon felt it was inappropriate and unconstitutional to reverse an established statute by way of an appropriations bill. Currently, legislation is being drafted in an effort to provide a more fair solution to the budget cuts that will be taken from K-12 education. Nevertheless, any decrease in funding of the foundation formula will result in less money available for K-12 education. Ultimately, this places an extraordinary burden on school districts and schools to find creative ways to maintain operation without a substantial decrease in the education they offer students. This often requires school boards to expand class sizes, reduce curriculum offerings, and freeze teacher salaries. Clearly, these changes directly impact the educational experience of students. In addition, larger class sizes means less one on one attention between teachers and students. This may likely have a disproportionate impact on Missouri’s neediest students. With recent concern about the quality of K-12 education in Missouri and Governor Nixon urging the importance of limiting cuts to K-12 educations; the reality of the harsh economic conditions is beginning to set in. Even budget expenditures that are considered fundamental components of government are on the chopping block.

For more info see: http://www.globe-democrat.com/news/2010/apr/14/senates-late-night-looks-ways-spend-less/

Friday, April 16, 2010

The State of Ohio has recently changed its method for funding Ohio public schools. This controversial model was enacted as part of the 2010-2011 state budget; the model is called the Ohio Evidence-Based Model. The model will be phased in over the next ten years.Along with this funding change comes education reform to “modernize” the Ohio public schools.At a time when several states are decreasing education spending the Governor of Ohio has chose to increase the spending.http://www.governor.ohio.gov/K12Education.aspx

The Organization, Ohio Education Matters explains the Governors reform plan including the funding mechanism, Ohio evidence-based model, this model, “reduces the overreliance on local property taxpayers to fund Ohio’s public schools.”http://www.ohioeducationmatters.org/directing-school-funding-what-works/ohios-new-funding-plan

According to the Ohio Education Matters,

The Governor’s plan:
• Raises the state share of education funding to more than 60 percent when fully phased in FY 2018-2019
• Eliminates “residual budgeting” by an evidence-based model that uses research to cost out the components of a quality education
• Begins the phase out of “phantom revenue” by lowering the state charge-off to 22-mills this biennium and allowing states to use conversion levies to reach the 20-mill floor
• Creates the Ohio School Funding Advisory Council to continuously review and update the funding formula through recommendations to the governor and legislature
• With resources (Title 1 and IDEA) from the American Recovery and Reinvestment Act, all school districts receive an increase in FY 10. Ohio’s public school districts will receive an average of 5.78 percent increase in FY 10 (over FY 09) and an average 5.54 percent increase in FY 11 (over FY
09). * With ARRA resources, five districts receive a decrease in FY 11, the greatest reduction is .6 percent.
• Under the Governor’s plan, poorer districts receive the largest financial benefit. Without factoring in federal Title 1/IDEA ARRA resources, 79 percent of Ohio’s 124 poorest school districts will receive a funding increase in FY 10 and 85 percent will receive an increase in FY 11.

The website, Ohio Education Matters, also states that there is vast support for the plan throughout the state and nation. However, there is some dissent.The plan seems to remove control education from the local government and school districts and puts the control into the states hands.The state will pay for 60 percent of school funding but it will also control how schools districts spend their money.

A 6 million dollar study from Thomas B. Fordham Institute, Facing the Future: Financing Productive Schools suggests Governor Strickland’s program is more of the same and would “scuttle any modernizing effects.”The report suggests that this type of top down control does not allow for proper use of funds as all districts have different needs. “That study shows that ‘schools and systems that work best, especially for poor and disadvantaged youngsters, are not all alike: they use funds, teachers, students' time, materials, and technology very differently.’"